THE BLOG

Paying the Fox to Buy New Chickens

07/15/2010 02:37 pm ET | Updated May 25, 2011

Corruption is center stage right now. Fines against companies are counted in billions. Executives are extradited and imprisoned. President Obama, Secretary of State Clinton, Attorney General Holder and their staffs address the corrosive impact of corruption in speeches at home and abroad in Accra, Nairobi and Doha.

Compensating the victims of corruption is a hot new topic. Restitution to victims is hard not to like. When public officials take bribes to buy shoddy goods at inflated prices, their citizens suffer. When food and drug officials take bribes to approve tainted or inert pharmaceutical products, their citizens suffer. And when government inspectors take bribes to avert their eyes from code violations, their citizens suffer. Compensating the citizens of corrupt governments is a compelling and attractive idea. But it's more complicated than it sounds.

Let's imagine a US company that has used bribery as a routine marketing strategy. They've done this in violation of US law and the laws of every country in which they operate. Instead of selling a good product at a competitive price, they've paid bribes to encourage government officials to buy their products in spite of quality or cost. In some cases, they've convinced government officials to buy products their countries don't need at all. What does compensation to the victims look like?

The company may be assessed a fine and told to pay that back to the people of China, for example, or Iraq, or Nigeria. How does that work? Is the check made payable to the Treasury? How is the money spent? How do we have any confidence that the money isn't promptly looted? Remember that the penalty has been assessed because the country in question had officials who sold themselves to the highest bidder and, presumably, that hasn't changed.

Some argue for monitoring of the funds, but the anti-bribery enforcement agencies don't have the staff or expertise for that. We want our enforcement agencies deterring and punishing crime, not overseeing a vast grant-making body managing victim restitution funds.

Of course the citizens of corrupt countries are the first and often most vulnerable victims of corrupt governments. But they aren't the only victims. When companies are made to pay hundreds of millions of dollars in fines and remediation and have their reputations ravaged because their executives thought bribery was a good idea, the shareholders suffer. When competitor companies that don't bribe lose contracts to those that do, they're also victims.

Unlike almost any other international crime, everyone is a victim of corruption. Although bribery tends to be most prevalent in the least democratic countries, no community is immune. Bribes are paid to circumvent health and safety regulations, to avoid environmental standards, to sidestep customs and security at ports and airports, to encourage police to harass others or to ignore harassment, to buy doctors, judges, mayors, governors and dictators, UN officials and International Olympic Committees. The impact of bribery is global.

The US Department of Justice does not attempt to compensate victims of bribery. The UK Serious Fraud Office does. The US has been accused by some of making anti-bribery efforts a profit center. The UK, on the other hand, has declared that BAE Systems plc must pay a part of its recently assessed fine as a donation to Tanzania. Tanzania, where the then Attorney General has been implicated in the tainted deal. A donation to Tanzania. We'll see how that works out.